CHESAPEAKE ENERGY 2017 Q4 EARNINGS - February 22, 2018 - Chesapeake Energy ...
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CHESAPEAKE ENERGY
2017 Q4 EARNINGS
February 22, 2018
FORWARD-LOOKING STATEMENTS
This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are statements other than statements of historical fact. They include statements that give our current expectations, management's outlook guidance
or forecasts of future events, production and well connection forecasts, estimates of operating costs, anticipated capital and operational efficiencies, planned development drilling
and expected drilling cost reductions, anticipated timing of wells to be placed into production, general and administrative expenses, capital expenditures, the timing of anticipated
asset sales and proceeds to be received therefrom, the expected use of proceeds of anticipated asset sales, projected cash flow and liquidity, our ability to enhance our cash flow
and financial flexibility, plans and objectives for future operations, the ability of our employees, portfolio strength and operational leadership to create long-term value, and the
assumptions on which such statements are based. Although we believe the expectations and forecasts reflected in the forward-looking statements are reasonable, we can give
no assurance they will prove to have been correct. They can be affected by inaccurate or changed assumptions or by known or unknown risks and uncertainties.
Factors that could cause actual results to differ materially from expected results include those described under “Risk Factors” in Item 1A of our annual report on Form 10-K and
any updates to those factors set forth in Chesapeake's subsequent quarterly reports on Form 10-Q or current reports on Form 8-K (available at http://www.chk.com/investors/sec-
filings). These risk factors include the volatility of oil, natural gas and NGL prices; the limitations our level of indebtedness may have on our financial flexibility; our inability to
access the capital markets on favorable terms; the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations;
downgrade in our credit rating requiring us to post more collateral under certain commercial arrangements; write-downs of our oil and natural gas asset carrying values due to low
commodity prices; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and projecting future
rates of production and the amount and timing of development expenditures; our ability to generate profits or achieve targeted results in drilling and well operations; leasehold
terms expiring before production can be established; commodity derivative activities resulting in lower prices realized on oil, natural gas and NGL sales; the need to secure
derivative liabilities and the inability of counterparties to satisfy their obligations; adverse developments or losses from pending or future litigation and regulatory proceedings,
including royalty claims; charges incurred in response to market conditions and in connection with our ongoing actions to reduce financial leverage and complexity; drilling and
operating risks and resulting liabilities; effects of environmental protection laws and regulation on our business; legislative and regulatory initiatives further regulating hydraulic
fracturing; our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used; impacts of potential legislative and regulatory
actions addressing climate change; federal and state tax proposals affecting our industry; potential OTC derivatives regulation limiting our ability to hedge against commodity
price fluctuations; competition in the oil and gas exploration and production industry; a deterioration in general economic, business or industry conditions; negative public
perceptions of our industry; limited control over properties we do not operate; pipeline and gathering system capacity constraints and transportation interruptions; terrorist
activities and cyber-attacks adversely impacting our operations; an interruption in operations at our headquarters due to a catastrophic event; certain anti-takeover provisions that
affect shareholder rights; and our inability to increase or maintain our liquidity through debt repurchases, capital exchanges, asset sales, joint ventures, farmouts or other means.
In addition, disclosures concerning the estimated contribution of derivative contracts to our future results of operations are based upon market information as of a specific date.
These market prices are subject to significant volatility. Our production forecasts are also dependent upon many assumptions, including estimates of production decline rates
from existing wells and the outcome of future drilling activity. Expected asset sales may not be completed in the time frame anticipated or at all. We caution you not to place
undue reliance on our forward-looking statements, which speak only as of the date of this presentation, and we undertake no obligation to update any of the information provided
in this presentation, except as required by applicable law. In addition, this presentation contains time-sensitive information that reflects management's best judgment only as of
the date of this presentation.
We use certain terms in this presentation such as “Resource Potential,” “Net Reserves” and similar terms that the SEC’s guidelines strictly prohibit us from including in filings with
the SEC. These terms include reserves with substantially less certainty, and no discount or other adjustment is included in the presentation of such reserve numbers. U.S.
investors are urged to consider closely the disclosure in our Form 10-K for the year ended December 31, 2017, File No. 1-13726 and in our other filings with the SEC, available
from us at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118. These forms can also be obtained from the SEC by calling 1-800-SEC-0330.
Q4 2017 EARNINGS 2
4Q’17 FINANCIAL AND OPERATIONAL RESULTS
(1) (1)
Inclusive of capitalized interest
Over 4X higher than 4Q 2016 83% increase over 4Q 2016 Down 24% from 3Q 2017
(2)
9% increase over 3Q 2017 16% increase over 3Q 2017 6% decrease over 3Q 2017
(1) See non-GAAP reconciliation on pages 11 and 12
(2) Cash costs defined as lease operating expenses combined with general and administrative expenses (excluding stock-based compensation)
Q4 2017 EARNINGS 3UPDATE ON RECENT PROGRESS
Cash proceeds from divestitures
˃ ~$500 million in asset sales signed in late 2017
and 2018; expected to close in 1H 2018
• Represents an EBITDA multiple of 7.1x
˃ ~$74 million in net proceeds from sale of FTSI shares
˃ Pursuing multiple large transactions
Current liquidity is strong
~$3.1 billion ~$450 million
Revolver availability In pending receipts (2)
as of January 31, 2018 (1)
(1) Approximately $533 million borrowed on revolving credit facility and includes approximately ~$137 million of letters of credit
(2) At January 31, 2018 and includes proceeds from planned asset sales, FTSI sale of ~4.3 million shares and a positive legal settlement.
Q4 2017 EARNINGS 4WHAT’S THE IMPACT?
Sold ~23,000 boe/d (25% oil), yet 2018 adjusted
production still projected to grow ~3%
(1)
Cost structure reduced by ~$0.14/boe
Interest expense may be reduced by up to ~$50 million annually
Overhead reduction of ~$70 million through efficiencies and synergies
Remaining FTSI ownership of ~22 million shares
We expect to be cash flow positive
+ with signed/closed A&D activity at current strip prices in 2018
(1) Includes production expenses and gathering, processing and transportation expenses.
Q4 2017 EARNINGS 5(1)
PREMIER, DIVERSIFIED ASSET BASE
MARCELLUS
1 rig
POWDER RIVER BASIN
~4 rigs
~$1.60 – 2.20/mcf Breakeven
Acreage ~577,000 (86% Held)
~4.7 million
~$25 – 35/bbl Breakeven Net acres
Acreage ~275,000 (72% Held) UTICA
2 rigs
~$1.35 – 1.80/mcf Breakeven
Acreage ~938,000 (87% Held)
~13,300
Undrilled locations
MID-CONTINENT
150
~1 rig
~$30 – 40/bbl Breakeven TIL Count
125
Acreage ~806,000 (97% Held)
100
75
50
HAYNESVILLE
25
3 rigs
~$2.00 – 2.50/mcf Breakeven
Acreage ~358,000 (90% Held) 0
Q1 2018 Q2 2018 Q3 2018 Q4 2018
EAGLE FORD Gulf Coast Rockies
~4 rigs Appalachia North Appalachia South
~$30 – 40/bbl Breakeven Mid-Continent South Texas
Acreage ~245,000 (97% Held)
(1) Net acreage at December 31, 2017 is proforma for announced Mid-Continent asset divestitures and excludes approximately 1.5 million of “Other” net acreage;
2018 estimated average rig count; PV10 breakeven with oil held flat at $55/bbl and gas held flat at $3/mcf
Q4 2017 EARNINGS 6Appendix Q4 2017 EARNINGS 7
HEDGING POSITION
AS OF 2/19/2018 (1)
Natural Gas Oil NGL
2018 2018 2018
5% 5%
Collars Collars $39.15/$47/$55/bbl 4% NGL
$3.00/$3.25/mcf
HH WTI Swaps
63% 74%
Swaps $3.11/mcf Swaps $52.87/bbl (2)
HH WTI
5% Propane Swaps $0.73/gal
5% Ethane Swaps $0.28/gal
10% Butane Swaps $0.88/gal
• ~10.7 mmbbls of 2018 LLS-WTI oil basis hedges @ +$3.32
• ~57.7 bcf of January – October 2018 TGP Zone 4 gas basis hedges @ -$0.77
• ~5.7 bcf of January – February 2018 Tetco M3 gas basis hedges @ +$2.12
• ~3.3 mmbbls of 2019 oil hedged with swaps at an average price of $56.04
(1) Does not reflect January 2018 and February 2018 gas settlements
(2) Oil swaps include 5% 2H18 calls (extendable calls) expected to be exercised at $52.87 per bbl
Q4 2017 EARNINGS 8DEBT MATURITY PROFILE
2018 OUTLOOK (1)
$9.2 billion 7.10% $533 million
Senior Notes & Term Loan WACD Revolving Credit Facility
$3,000
Revolving Credit Facility
Secured
$2,500
Unsecured
$2,047 Convertibles
$2,000 $1,868
$1,500
$ millions
$1,300 $1,300
$1,250
$1,000
$665
$533
$500
$338
$53 $380
$0
2018 2019 2020 2021 2022 2023 2025 2026 2027
(1) As of 1/31/2018
Q4 2017 EARNINGS 9ADJUSTED PRODUCTION RECONCILIATION
CUMULATIVE IMPACT OF MULTIPLE SALES TRANSACTIONS
Production with Divestiture Adjustments (1)
650
600
550
500
450
mboe/d
400
350
300
250
200
(2)
2016 2017 2018
Total Production Divested Gas Volume Divested Liquids Volume
(1) Adjusted for sales signed or closed in 2016, 2017 and expected in 2018
(2) Projected 2018 total production volumes represent the midpoint of guidance as of 2/22/2018
Q4 2017 EARNINGS 10RECONCILIATION OF ADJUSTED EPS
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
($ in millions except per share data)
(unaudited)
Three Months Ended December 31,
2017 2016
$/Diluted $/Diluted
$ Share(b)(c) $ Share(b)(c)
Net income (loss) available to common stockholders
(GAAP) $ 309 $ (740)
Effect of dilutive securities 35 —
Diluted earnings (loss) per common stockholder (GAAP) $ 344 $ 0.33 $ (740) $ (0.83)
Adjustments:
Unrealized losses on oil, natural gas and NGL
derivatives 73 0.07 395 0.45
Restructuring and other termination costs — — 3 —
Provision for legal contingencies, net (73) (0.07) 11 0.01
Impairments of fixed assets and other (5) — 43 0.05
Net gains on sales of fixed assets (3) — (7) (0.01)
Impairments of investments — — 119 0.13
(Gains) losses on purchases or exchanges of debt (50) (0.05) 19 0.02
Loss on exchange of preferred stock — — 428 0.48
Income tax expense (benefit)(a) — — (190) (0.21)
Other 4 — 13 0.01
Adjusted net income available to common
stockholders(b) (Non-GAAP) 290 0.28 94 0.10
Preferred stock dividends 23 0.02 (30) (0.03)
Earnings allocated to participating securities 1 — — —
Total adjusted net income attributable to
Chesapeake(b) (c) (Non-GAAP) $ 314 $ 0.30 $ 64 $ 0.07
(a) Due to our valuation allowance position, no income tax effect from the adjustments has been included in determining adjusted net income. Our effective tax rate in the three months ended December 31, 2016 was 35.7%.
(b) Adjusted net income (loss) available to common stockholders and total adjusted net income (loss) attributable to Chesapeake, both in the aggregate and per dilutive share, are not measures of financial performance under GAAP, and should not
be considered as an alternative to, or more meaningful than, net income (loss) available to common stockholders or earnings (loss) per share. Adjusted net income (loss) available to common stockholders and adjusted earnings (loss) per share
exclude certain items that management believes affect the comparability of operating results. The company believes these adjusted financial measures are a useful adjunct to earnings calculated in accordance with GAAP because:
(i) Management uses adjusted net income (loss) available to common stockholders to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.
(ii) Adjusted net income (loss) available to common stockholders is more comparable to earnings estimates provided by securities analysts.
(iii) Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information regarding these types of items.
Because adjusted net income (loss) available to common stockholders and total adjusted net income (loss) attributable to Chesapeake exclude some, but not all, items that affect net income (loss) available to common stockholders and total
adjusted net income (loss) attributable to Chesapeake may vary among companies, our calculation of adjusted net income (loss) available to common stockholders and total adjusted net income (loss) attributable to Chesapeake may not be
comparable to similarly titled financial measures of other companies.
(c) Our presentation of diluted net income (loss) available to common stockholders and diluted adjusted net income (loss) per share excludes 60 million and 211 million shares considered antidilutive for the three months ended December 31, 2017
and 2016, respectively and thus excluded from the calculation. The number of shares used for the non-GAAP calculation were determined in a manner consistent with GAAP.
Q4 2017 EARNINGS 11RECONCILIATION OF ADJUSTED EBITDA
CHESAPEAKE E NERGY CORPORATION
RECONCILIATION OF ADJUSTED EBITDA
($ in millions)
(unaudited)
Three Months Ended Years Ended
December 31, December 31,
2017 2016 2017 2016
EBITDA (Non-GAAP) $ 764 $ (199) $ 2,376 $ (3,186)
Adjustments:
Unrealized losses (gains) on oil, natural gas and NGL
derivatives 73 395 (354) 818
Unrealized losses on supply contract derivative — — — 297
Restructuring and other termination costs — 3 — 6
Provision for legal contingencies, net (73) 11 (38) 123
Impairment of oil and natural gas properties — — — 2,564
Impairments of fixed assets and other (5) 43 421 838
Net gains on sales of fixed assets (3) (7) (3) (12)
Impairments of investments — 119 — 119
Loss on sale of investment — — — 10
(Gains) losses on purchases or exchanges of debt (50) 19 (233) (236)
Net loss (income) attributable to noncontrolling
interests (1) (1) (4) 9
Other 1 2 (5) —
Adjusted EBITDA (Non-GAAP) (a) $ 706 $ 385 $ 2,160 $ 1,350
(a) Adjusted EBITDA excludes certain items that management believes affect the comparability of operating results. The company believes these non-GAAP financial measures are a useful adjunct to EBITDA because:
(i) Management uses adjusted EBITDA to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.
(ii) Adjusted EBITDA is more comparable to estimates provided by securities analysts.
(iii) Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information regarding these types of items.
Accordingly, adjusted EBITDA should not be considered as a substitute for net income, income from operations or cash flow provided by operating activities prepared in accordance with GAAP. Because adjusted EBITDA excludes
some, but not all, items that affect net income (loss from continuing operations) attributable to common stockholders, our calculations of adjusted EBITDA may not be comparable to similarly titled measures of other companies.
Q4 2017 EARNINGS 12CORPORATE INFORMATION
HEADQUARTERS PUBLICLY TRADED SECURITIES CUSIP TICKER
6100 N. Western Avenue 7.25% Senior Notes due 2018 #165167CC9 CHK18A
Oklahoma City, OK 73118 3mL + 3.25% Senior Notes due 2019 #165167CM7 CHK19
WEBSITE: www.chk.com 6.625% Senior Notes due 2020 #165167CF2 CHK20A
#165167BU0
CORPORATE CONTACTS 6.875% Senior Notes due 2020 #165167BT3 CHK20
#U16450AQ8
BRAD SYLVESTER, CFA 6.125% Senior Notes Due 2021 #165167CG0 CHK21
Vice President – Investor Relations
5.375% Senior Notes Due 2021 #165167CK1 CHK21A
and Communications
4.875% Senior Notes Due 2022 #165167CN5 CHK22
DOMENIC J. DELL’OSSO, JR. #165167CQ8
8.00% Senior Secured Second Lien Notes due 2022 N/A
Executive Vice President and #U16450AT2
Chief Financial Officer 5.75% Senior Notes Due 2023 #165167CL9 CHK23
#165167CT2
Investor Relations department 8.00% Senior Notes due 2025 N/A
#U16450AU9
can be reached at ir@chk.com #165167CV7
8.00% Senior Notes due 2027 N/A
#U16450AV7
5.50% Contingent Convertible Senior Notes due 2026 #165167CY1 N/A
2.25% Contingent Convertible Senior Notes due 2038 #165167CB1 CHK38
4.5% Cumulative Convertible Preferred Stock #165167842 CHK PrD
#165167834
5.0% Cumulative Convertible Preferred Stock (Series 2005B) N/A
#165167826
#U16450204
5.75% Cumulative Convertible Preferred Stock #165167776 N/A
#165167768
#U16450113
5.75% Cumulative Convertible Preferred Stock (Series A) #165167784 N/A
#165167750
Chesapeake Common Stock #165167107 CHK
Q4 2017 EARNINGS 13You can also read
